The Bill signed by Governor Dayton also included changes to estate and gift taxes for the State of Minnesota. It modified the filing requirements for the estate tax to provide that taxable gifts (in excess of the annual exclusion amount) made within three years of death had to be added to the value of the estate to determine if the estate exceeded the $1 Million filing requirement.

In addition, two changes to situs rules were also enacted. Situs rules relate to the place where something is held for legal purposes. The first change relates to gifts of tangible personal property which would be assigned to the place it is normally kept, and for gifts of intangible property (cash, stocks and securities) would be assigned to the domicile of the donor.

The second change is to provide special situs rules under the estate tax for nonresidents who have ownership interests in pass-through entities that own real or tangible property in Minnesota. In the past, these interests were treated as an intangible interest and would avoid inclusion in the Minnesota estate. The change assigns the situs of the real and tangible personal property as if the pass-through entity did not exist.

These three changes are all for decedents dying after December 31, 2012.

Minnesota is now the only state in the U.S. other than Connecticut that has a gift tax. Effective for gifts made after June 30, 2013, there is now a gift tax of 10% on taxable gifts (in excess of annual exclusion amounts). There is a lifetime credit of $100,000 (equivalent to a $1 Million exemption).

Taxpayers should discuss with their estate tax advisors the benefits of considering major gifts prior to the June 30, 2013 deadline, and the effect it might have on their overall estate planning. In addition, non-residents with ownership interests in pass-through entities that own property and operate in Minnesota should also discuss various opportunities with their estate tax advisors.

For the past several years, the Minnesota estate tax provides an additional $4 Million exemption for estates that included a farm or small business. In relation to that exemption, the current law clarified and liberalized the rules for its allowance. If an estate tax was paid in the last two years where there was ownership of a small business or farm, this situation would probably warrant a review of the legislation to see if an amended return might be filed to obtain a refund.

Most of these changes, as well as others we have not necessarily included will need additional guidance from the Department of Revenue. This memo is meant to be a summary of key provisions from the recent omnibus bill that was recently enacted. Contact your tax advisor with specific questions.

 

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